Central Counterparty Clearing

Market trends

Across the globe, new government OTC initiatives being proposed are aimed at pushing all standard OTC Derivatives from bilateral agreements to Central Counterparty Clearing (CCP). The CCP model for OTC – similar to the familiar model used in futures markets – act as a stabilizing element to reduce global systemic risk. Adoption of the Central Counterparty Clearing model provides:

• More robust risk controls and capital adequacy
• Reduce systemic risk (spill over)
• Enhance market liquidity, transparency
• Improve operational efficiency

As a result, the major Clearing Houses and Exchanges have published targets for OTC trades to move to a CCP model. A number of new OTC Clearing Platforms have been launched globally to support these regulatory initiatives (for example: CME, ICE, EUREX, SGX, LCH). 

Credit risk is always a factor when two parties are involved in negotiating transactions in the derivatives and equities markets. Central Counterparty Clearing Houses (CCP) benefit both seller and buyer by bearing most of the credit risk for the transaction. Once the counterparties have agreed to the terms of the trade, the CCP uses well defined templates to match the product

Calypso Solution

In response to the migration of major portions of the OTC market to a CCP model, Calypso has been working intensely with a number of Clearing Houses to develop software solutions for trade capture and lifecycle processing and for meeting specific risk margining requirements of the CCPs. OTC clearing is supported on the Calypso platform for over one hundred product types. Several clearers are users of the Calypso system and have been driving development of new functionality.